A study of more than 1,600 arbitration cases over the past five years shows an "alarmingly high" rate of brokers who were able to get their arbitration histories wiped clean, leaving investors vulnerable to potential fraud and abuse, according to a report by the Public Investors Arbitration Bar Association.

In reviewing all securities arbitration awards in cases filed between Jan. 1, 2007 and Dec. 31, 2011 in which the word "expungement" appears, the report by PIABA, which is an association of lawyers who represent aggrieved investors, found:<!– Read More –>

  • Between Jan. 1, 2007 and mid-May 2009, expungement was granted in 89 percent of the cases resolved by stipulated awards or settlement. (The May 2009 end-date reflects a change in reporting requirements mandating more information about arbitration cases.)
  • For mid-May 2009 through the end of 2011, expungement relief was granted in nearly every instance: 96.9 percent of the cases resolved by settlements or stipulated awards.

"To say that 'expungement' of customer claims from broker records is a major investor protection problem is an understatement," Scott Ilgenfritz, outgoing president of PIABA and author of the expungement study, said during a Wednesday conference call to announce the study's findings. "What is supposed to be an extraordinary relief measure is now being sought and granted in roughly nine out of the 10 settled cases that we studied."

Such a high percentage of expungements "clearly indicates that the current expungement procedures are seriously flawed. Regulators need to step in and crack down on the granting of expungements, particularly in settled cases."

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Melanie Waddell

Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.